Indian Energy Exchange Ltd

Imagine walking into your favorite kirana shop, only to find that every store now sells at the same price set by someone else. No discounts, no competition, just one fixed rate for all. That’s exactly what could unfold in India’s power market. A proposal by the regulator aims to centralize electricity pricing across exchanges. The result? IEX shares crashed 29.5 per cent, erasing nearly ₹5,000 crore in market value. Will its market share be retained in this storm?[EasyDNNnews:PaidContentStart]

We’ve seen how one regulation can upend entire industries like the AGR (Adjusted Gross Revenue) ruling in telecom or RERA (Real Estate Regulatory Authority) in real estate. Now, it’s the power sector’s turn. For years, Indian Energy Exchange (IEX) dominated with strong liquidity and no real rivals. But, one notification from the Central Electricity Regulatory Commission (CERC) on Market Coupling has shaken that grip, threatening to shift volumes to Power Exchange India Ltd (PXIL) and Hindustan Power Exchange (HPX). This could disrupt IEX’s monopoly, impact its valuation, and reshape its business model. Is this just a temporary hit or the start of a major change?

Understanding the business of IEX
To understand the business of the IEX, it’s important to first get a clear view of how the Indian power industry operates and where IEX fits into this structure.

India’s power sector has three key pillars: Generators like NTPC and Tata Power produce electricity using coal, gas, or renewables; Transmission companies like Power Grid move it across regions via high-voltage lines; and Distribution companies (Discoms) deliver power to homes and businesses.

Most electricity in India is traded through long-term power purchase agreements (PPAs) between generators and distributors, signed years in advance at fixed prices. While this ensures stability, it struggles to manage sudden demand spikes.

When demand spikes unexpectedly, like during a hot summer, distributors may need extra power beyond their contracts. They turn to exchanges like IEX, where generators with surplus electricity sell on short notice through the Day Ahead or Real Time Market.

Overview of Company
IEX is India’s largest energy exchange, offering an automated platform for trading electricity, Renewable Energy Certificates (RECs), and Energy Saving Certificates (ESCerts). Licensed by CERC, it enables nationwide spot trading and delivery of power units.

The One Regulatory Paper That Could Disrupt IEX’s Dominance: Market Coupling Framework
IEX, India’s main power exchange, has long dominated with a 98.8 per cent share in the Day Ahead Market and full control over price discovery. However, CERC has introduced market coupling, a reform where all power exchanges are linked and a central authority sets a uniform price. This ends IEX’s pricesetting power and could impact its growth, pricing strength, and valuation.

What is Market Coupling?
Announced by CERC, market coupling will be introduced in a phased manner starting January 2026, first in the Day-Ahead Market segment. Instead of each power exchange discovering its market clearing price independently, a central 'Market Coupling Operator' will aggregate all buy and sell bids from all exchanges (such as IEX, PXIL, HPX) and determine a single 'uniform price' for the country.

Impact on IEX: Previously, IEX's dominant liquidity made it the primary price setter, attracting volume and transaction revenue. Under coupling, IEX and its competitors' orders will be pooled, eroding IEX's moat and market share advantage - a major reason for the sharp fall in IEX's share price after the regulation was announced.

The Big Picture: What CERC's Role Means for IEX
CERC’s new rules aim to create a fair, stable, and competitive power market, shifting IEX from dominance to competing on service and innovation. Market coupling will promote fair pricing and unify regional markets into a single efficient system.

Market Share Breakdown: IEX’s Dominance in Key Segments
India generates about 1,739 billion units (BU) of electricity every year, growing at a steady 6 per cent CAGR. Out of this, around 219 BU or 13 per cent of total power is traded through short-term contracts, which are growing even faster at 9 per cent CAGR. Now, here’s where IEX comes into play. Over 56 per cent of this short-term power (about 122 BU) is traded on power exchanges like IEX, PXIL, HPX.

Electricity is traded through three markets: DAM (Day Ahead Market) for next-day needs, where IEX leads with 98.8 per cent share; RTM (Real Time Market) for urgent, last-minute demand, with IEX holding 99.7 per cent; and TAM (Term Ahead Market) for short-term deals, where IEX has a smaller 44 per cent share.

Here’s IEX’s product mix
RTM: 34 per cent, DAM: 33 per cent, Certificates: 14 per cent, TAM: 10 per cent, Green Market: 7 per cent, DAC: 2 per cent IEX has built a near monopoly in DAM and RTM, making these reforms critical for its future.

Q1FY26 Financials
IEX reported a strong Q1 FY26 with revenue up 19 per cent YoY to ₹184.2 crore, driven by higher trading volumes and growth in subsidiaries. EBITDA rose 23 per cent to ₹164.4 crore, helped by cost control and scale benefits. Net profit jumped 25 per cent to ₹120.7 crore despite lower market prices. Strong execution and volume growth kept margins intact.

Operational Performance: Prices Ease, Volumes Hold Steady
IEX’s Day-Ahead Market prices fell 16 per cent YoY to ₹4.41/ unit due to a 45 per cent surge in power supply from better coal availability and surplus from state utilities. Real-Time Market prices also dropped 20 per cent to ₹3.91/unit as supply improved. Though lower prices cut revenue per unit, a 15 per cent rise in trading volumes helped offset this and drove overall income growth.

Subsidiaries Continue to Scale Up
IEX’s subsidiaries showed strong growth, supporting its push beyond power trading. International Carbon Exchange (ICX) issued 44 lakh green certificates, earning ₹1.79 crore. Indian Gas Exchange (IGX) saw record gas volumes and 87 per cent jump in profit to ₹14.1 crore, driven by higher participation. These gains help offset risks in the main power business.

Outlook and Valuation
IEX holds over 85 per cent share in India’s power exchange market, including 98 per cent plus in the key Day-Ahead Market. It’s also expanding into new areas like Carbon Exchange (~10 per cent share) and Gas Exchange, which saw 85 per cent YoY profit growth.

On the regulatory front, market coupling poses a key near-term challenge, as it will need major software upgrades, system integration, infrastructure changes, standardised data sharing, financial settlement rules, and regulatory revisions.

Given these complexities, we believe that the target date of January 2026 for full-scale market coupling is unrealistic, and a more practical timeline for implementation is post-December 2027, following adequate mock drills and phased rollouts.

Despite rising competition, IEX’s strong tech platform and customer focus should help it stay ahead. While DAM share may drop to ~75 per cent in 2-3 years, higher trading volumes post-coupling could support growth, given IEX’s more efficient platform versus PXIL and HPX.

On the financial front, we expect a normalisation in revenue growth as DAM market share erodes. Revenue growth is projected to decline from 19 per cent in FY26E to align with the company’s 10-year CAGR of ~13 per cent by FY28. Correspondingly, PAT growth is expected to moderate from 20 per cent in FY26E to ~13 per cent CAGR through FY28 and cost control measures are expected to help IEX maintain PAT margins at 78-80 per cent over the forecast period.

Earnings growth may slow, and while falling forward P/E improves valuation, near term risks from market coupling and potential DAM share loss remain. We maintain a HOLD rating, expecting valuation to re-rate with actual volume growth and clearer regulations over the next 12-24 months.

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